Layoffs Are Brutal. Don’t Make It Worse.

Legal Considerations When Downsizing Your Workforce

by  Steven A. Rowe

at Poyner Spruill LLP

With a weakening economy, many employers are now facing tough cost reduction decisions, which include possible separation of employees. Once it is decided to implement a reduction in force, the employer must make a further decision as to whether it will be voluntary, involuntary, or possibly a combination of both. Employers contemplating a possible reduction in force should consider the following: 

1. There are advantages and disadvantages to layoffs. The advantages include cost savings; maintaining only the strongest employees; and increasing qualified applicants in the field for businesses looking to hire new talent. The disadvantages include economic impacts on business/division operating with reduced manpower; negative impacts on employee morale and risk of liability; and potential productivity issues with smaller workforce. 
2. There are alternatives to reducing the workforce, which include, voluntary resignation and/or retirement programs; salary freezes or reductions across all levels; reduced work hours; sabbaticals; furloughs; temporary shutdowns; early-out packages; hiring freezes; and retraining and/or reassigning employees. 
3.  It is important to keep legal compliance and other issues in mind when downsizing your workforce, including the following: adherence to applicable federal, state, and local laws; compliance with internal protocols/policies and any employment contracts; development of a clear communication plan to reduce stress/anxiety and to maintain current (and retained) employee performance and morale; preservation of good reputation in the community; and implementation of workplace counseling services to minimize the risk of violence, assist with transitions, and to keep the separations as amicable a possible. 
4.  Recognize the possibility of discrimination claims and related liability risks, which include disparate treatment or disparate impact claims and retaliation claims (e.g., for taking protected leave close in time to the employee’s termination/layoff), and document the legitimate, non-discriminatory business justifications for the reduction to best defend your business from such lawsuits. 
5.  You should carefully analyze the selection considerations for the layoff group and confirm that the criteria objective is uniformly applied and that the decisions are consistent with business justifications and documentation. You should also conduct an adverse impact analysis and determine whether any of the affected employees have a possible retaliation or interference claim in order to evaluate legal risks. 
6.  You should review company employment policies and contracts for specifications regarding layoff procedures, provisions negating at-will employment, criteria regarding order of groups to be affected, payouts of accrued but unused paid time off for separated employees, and mandated severance pay or packages. 
7.  You should carefully consider whether foreign nationals are impacted and whether the layoff triggers reporting and notice requirements under the WARN Act or similar local laws. If so, you should confirm compliance with the WARN Act and state plant closing laws. 
8.  Analyze severance considerations, including whether there is an express or implied policy requiring severance, will severance be conditioned on a release and is there sufficient consideration for a release. If so, is there objective criteria to support reasons for offering severance to selected employees and will there be any continuing obligations related to the severance. 
9. If releases are used, make sure that they comply with all applicable federal, state, and local laws, including the ADEA and the OWBPA. 
10. You should carefully consider how best to draft notices of separation and the methods of communicating such notices to affected employees. 
11. Remember to comply with all applicable wage and hour laws including final paycheck timing requirements, payout of accrued, unused vacation or PTO, and payment of accrued but unpaid commissions and bonuses. 
12. You should confirm compliance with all requirements related to benefit plans and provide an opportunity for terminated employees to elect COBRA.